Federal Judge Overturns NCAA|Restrictions on Athletes’ Income

OAKLAND, Calif. (CN) – NCAA rules prohibiting student athletes from being paid for the use of their names, images and likeness “unreasonably restrain trade in the market for educational athletic opportunities for Division I colleges and universities,” a federal judge ruled Friday. U.S. District Judge Claudia Wilken enjoined the NCAA “from enforcing any rules or bylaws that would prohibit its member schools and conferences from offering their FBS [Football Bowl Subdivision] football or Division I basketball recruits a limited share of the revenues generated from the use of their names, images, and likenesses in addition to a full grant-in-aid.” Led by former UCLA star Ed O’Bannon, 20 student athletes sued the governing body for college athletics in a 2009 class action for the right to a share in the television broadcast revenue for their names, images and likenesses. A two-week bench trial was held in June. In a 99-page opinion on Friday, Wilken found that the class had shown an injury to competition “only in the college education market or the market for recruits’ athletic services and licensing rights.” Wilken found that acting in concert through the NCAA and its conferences, FBS Football and Division 1 basketball schools hold all the power to fix the price of the educational and athletic opportunities they offer to recruits. “They have chosen to exercise this power by forming an agreement to charge every recruit the same price for the bundle of educational and athletic opportunities that they offer: to wit, the recruit’s athletic services along with the use of his name, image, and likeness while he is in school,” Wilken wrote. “If any school seeks to lower this fixed price – by offering any recruit a cash rebate, deferred payment, or other form of direct compensation – that school may be subject to sanctions by the NCAA. This price-fixing agreement constitutes a restraint of trade.” Wilken added: “Indeed, the NCAA’s own expert, Dr. [Daniel] Rubinfeld, acknowledged that the NCAA operates as a cartel that imposes a restraint on trade in this market.” Wilken, citing high salaries for coaches and extravagant training facilities, said that schools should be able to afford to pay athletes. “The high coaches’ salaries and rapidly increasing spending on training facilities at many schools suggest that these schools would, in fact, be able to afford to offer their student-athletes a limited share of the licensing revenue generated from their use of the student-athletes’ own names, images, and likenesses,” Wilken wrote. Wilken’s ruling shot down the NCAA’s primary justifications for not paying college athletes: amateurism, competitive balance and the integration of athletics and academics. “The historical record that the NCAA cites as evidence of its longstanding commitment to amateurism is unpersuasive. This record reveals that the NCAA has revised its rules governing student-athlete compensation numerous times over the years, sometimes in significant and contradictory ways. Rather than evincing the association’s adherence to a set of core principles, this history documents how malleable the NCAA’s definition of amateurism has been since its founding,” Wilken wrote. She rejected the NCAA’s argument that fans of college football and men’s basketball watch or attend games because they know the players aren’t paid, and will stop watching if they are, noting NCAA President Mark Emmert testified that the popularity of college sports are driven by school or regional loyalty. “Dr. Emmert himself noted that much of the popularity of the NCAA’s annual men’s basketball tournament stems from the fact that schools from all over the country participate ‘so the fan base has an opportunity to cheer for someone from their region of the country,” Wilken wrote. She added: “This evidence demonstrates that the NCAA’s restrictions on student-athlete pay is not the driving force behind consumer interest in FBS football and Division I basketball. Thus, while consumer preferences might justify certain limited restraints on student-athlete compensation, they do not justify the rigid restrictions challenged in this case.” Wilken also found the NCAA’s compensation restrictions do not promote competitive balance, as the NCAA argued at trial. “The academic consensus on this issue is not surprising given that many of the NCAA’s other rules and practices suggest that the association is unconcerned with achieving competitive balance. Several witnesses testified that the restrictions on student-athlete compensation lead many schools simply to spend larger portions of their athletic budgets on coaching, recruiting, and training facilities. Wilken wrote at length on the issue, noting that a head football coach for a major conference can make more than $1.5 million a year. “The fact that high-revenue schools are able to spend freely in these other areas cancels out whatever leveling effect the restrictions on student-athlete pay might otherwise have. The NCAA does not do anything to rein in spending by the high-revenue schools or minimize existing disparities in revenue and recruiting,” the judge wrote. Wilken said that the NCAA does nothing to interfere with advantaged universities’ lavish spending. “This same sentiment underlies the NCAA’s unequal revenue distribution formula, which rewards the schools and conferences that already have the largest athletic budgets. Revenues generated from the NCAA’s annual Division I men’s basketball tournament are distributed to the conferences based on how their member schools performed in the tournament in recent years. As a result, the major conferences – and the highest revenue schools – typically receive the greatest payouts, which hinders, rather than promotes, competitive balance.” The judge disagreed with the NCAA’s contention that its anti-compensation rules are necessary to promote the integration of academics and athletics, and that paying student-athletes large sums could “create a wedge” between the student athletes and other students on campus. “It is not clear that any of the potential problems identified by the NCAA’s witnesses would be unique to student-athletes,” Wilken wrote, citing testimony from Emmert that wealthy students raise the same problems. “It is also not clear why paying student-athletes would be any more problematic for campus relations than paying other students who provide services to the university, such as members of the student government or school newspaper,” Wilken added. Attorneys for both sides were unavailable for comment. NCAA Chief Legal Officer Donald Remy issued a statement late Friday saying, “We disagree with the court’s decision that NCAA rules violate antitrust laws. We note that the court’s decision sets limits on compensation, but are reviewing the full decision and will provide further comment later.” The NCAA said it would appeal. As for relief, Wilken’s opinion says she favors a stipend for college athletes, as well as a share of the licensing revenue to be held in trust until they graduate. Wilken rejected the plaintiffs’ proposal that college athletes should be paid for endorsements, saying it could lead to commercial exploitation of student athletes. The injunction prohibits the NCAA from preventing its member schools from “offering to deposit a limited share of licensing revenue in trust for their FBS football and Division I basketball recruits, payable when they leave school or their eligibility expires.” It adds: “To ensure that the NCAA may achieve its goal of integrating academics and athletics, the injunction will not preclude the NCAA from enforcing its existing rules – or enacting new rules – to prevent student athletes from using the money held in trust for their benefit to obtain other financial benefits while they are still in school.”